If a bank borrows $1,000 from the Fed and lends it out,the bank sets in motion a process that will result in an expansion of the money supply by a multiple of that $1,000.

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This is because when the bank lends out the $1,000, that money becomes a deposit in another bank account. That bank can then lend out a portion of that deposit, and the recipient of that loan can deposit that money into another bank account, and so on. This creates a process known as the money multiplier effect, where the initial $1,000 borrowed by the bank can result in a multiple expansion of the money supply.

If a Bank Borrows $1,000 from the Fed and Lends